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Benefits of LLP (Limited-Liability-Partnership)
Hemlata Khandelwal / 2021-04-09 07:28:42A limited liability partnership is a partner whose participation is limited to the capital invested by each to start a business. In LLP your personal property is not liable for the debts of the firm. An LLP is a corporate body that is a legal entity independent of the partners that is a part of the organization.
Limited Liability Partnership (LLP) integrates the status and limited liability aspects of a company's separate legal entity as well as the ease of running a partnership. What's more is that such an entity has minimum compliance requirements and is not required to conduct an external audit of its books, unless it has a turnover of Rs 40 lakhs or a paid capital contribution of Rs 25 lakhs per year.
Benefits of LLP
- Separate Legal Entity:
An LLP is a separate legal entity. This means that it has property in its own name and can sue. Furthermore, one partner is not responsible or liable for the misconduct or negligence of the other partner.
- No owner / manager distinction:
An LLP has partners who own and manage the business. This is different from a private limited company, whose directors may differ from shareholders. For this reason, VC does not invest in LLP structure
- Flexible agreement:
The partners are free to draft the agreement as they please in relation to their rights and duties.
- Limited Liability:
The liability of the partners is limited to the extent of its contribution to the LLP. Until the fraud is detected, the partner's personal property is protected from any liability of the LLP.
- Low compliance requirements:
An LLP is much easier and cheaper than a private limited company as there are just three compliance per year. On the other hand, a private limited company has a lot of compliance to complete and conduct an audit of its books.
- Easy to finish LLP:
Not only it is easier to start, but it is also easier to finish LLP than a private company. While it is still taking two to three months to complete this process, it can take up to a year to close a private limited company.
LLP Loss:
- Inability to raise VC funds:
VC LLPs will not be ready to invest in the structure. This is because all shareholders in the LLP must be partners who have certain responsibilities towards the entity. No VC wants any of these responsibilities, and therefore, should invest only in a private limited company.
- Rights of partners:
An LLP can be structured in such a way that one partner has more rights than the other. Therefore it is not a vote on per share system. Therefore, some lesser partners may compromise if higher shareholders move the business in a direction that affects their interests.
- Maximum penalty:
Compliance with an LLP is minimal, but if you do not meet them, you may pay more in paying a fine with a private limited company. His fine can be increased to Rs 5 lakh for one year.
If you want to file LLP, you must be registered under the Act by taking LLP Annual Compliance in India. You have to spend time and money in business related documents and legal formalities. You cannot have confidential bus
